What is a Trust?

A Charitable Trust or foundation is a legal entity which can be set up by anyone who has decided that they want to set aside some of their assets or income for charitable causes. It does not require a substantial sum of money to set up a trust. You could start it with an initial endowment of a lump sum from a bonus, an inheritance, or the sale of shares. As a charitable trust is classified as a charity, it can receive money through tax-efficient giving methods – including Gift Aid, Payroll Giving or Shares.

Why would I create one?

Setting up a charitable trust or foundation can give you a framework for planning your charitable giving. It can also give you a greater say in how the money you give is directed to the causes that you want to support.

You could even involve your family as trustees – many people find it an enjoyable and constructive way of developing a shared family commitment to giving.

What are the benefits?

A trust can take advantage of various tax benefits. As well as being able to receive money through tax-efficient giving methods – including Gift Aid, Payroll Giving or Shares, it will not pay Corporation Tax, Inheritance Tax or tax on its investment income. If you eventually end up running an office for the trust, there will be no liability for business rates (there is a mandatory relief against business rates at 80%, as well as a further 20% on a discretionary basis). You can also receive tax relief on any money you pay into it.

How does it work?

You must draw up a Deed of Trust which sets out the limits of the Trust’s charitable purposes and powers. You and your trustees have control over who receives the money and in what proportion, as long as the beneficiaries fall within your specified charitable purposes. If the trust has an income of more than £5,000 per annum, you must register it with the Charity Commission.

The Trust can continue to be run by your trustees after your death and may be the beneficiary of a legacy from your estate (which will be tax-free).

What are the reporting requirements?

The only external supervision comes from the Charity Commission. After initial registration, your trust is required to publish a formal report and accounts each year (including a list of the main organisations it has helped) and you must send the Charity Commission an annual return and report any significant changes.

Source: The Institute of Fundraising